While it appears that Ottawa is not expected to end a messy battle by forcing the country’s banks to resolve client disputes through the Ombudsman for Banking Services and Investments (OBSI), the provinces are set to continue making it mandatory for investment dealers — including those owned by the banks – to use the mediator of last resort.

Sources say the Canadian Securities Administrator (CSA), which represents 13 provincial and territorial watchdogs, and the self-regulating bodies for the brokerage and mutual-fund industries, will reject the multi-platform system widely anticipated to be advocated by the federal government that would allow federally-chartered banks to hire their own mediators to sort out disputes with aggrieved clients.

“We’re not going with that multi-platform in securities so we’re going to have an issue,” said a senior regulator who asked not to be named. “It’s a shame. There’s no question that investors require something straightforward and predictable.”

At a time when Canadians are being asked to take more responsibility for their financial affairs, including investments, a crucial avenue for consumers to seek compensation in the event of a problem caused by their bank or broker will become more complicated — and more expensive.

There is growing concern among consumer advocate groups and regulators that if banks are allowed to choose a mediator to resolve disputes with their clients, the independence of the decisions will be compromised. Given that 75% of people who complain to OBSI are 50 or older — 53% of those are seniors — the financial harm may be magnified.

That’s the message Douglas Melville, OBSI’s chief executive, brought to the House of Commons standing committee on finance Tuesday.

“The public-policy question is this: Should banks be permitted to choose their own provider of dispute resolution? In essence, hire and pay for the organization that will judge and rule on their market conduct?”

For almost a year, OBSI has been under fire from a handful of the 600 member banks, investment dealers and mutual fund companies that fund it. Publicly, the complaints range from the methodology used to calculate reimbursements to aggrieved customers and the time it takes OBSI staff to investigate and close a file. Privately, what’s really chafing is the industry’s belief that OBSI has overstepped the boundaries of its mandate and has emerged as a quasi-regulator.

Founded in 1996 by the big banks, Canada’s independent financial ombudsman was the voluntary compromise offered by the banking sector at a time when it was concerned that Ottawa would impose a government mediator on them. OBSI was originally intended to review complaints by small business against the chartered banks and all banks were expected to participate.

As the mediator’s authority was later expanded to cover all consumer complaints, tensions began to emerge. Banks had been handling customer oversight for decades and resolving client matters privately without airing dirty laundry in public.

In 2002, in the aftermath of the technology bust, brokers, credit unions, mutual funds and other financial firms were forced to join OBSI by their self-regulatory bodies. However, participation for the banks remained voluntary.

Royal Bank of Canada, the country’s largest, cut ties with OBSI in 2008 at the height of the economic meltdown and has since been using its own private mediation services.

Two years later, the federal budget in 2010 announced changes to the Bank Act would be implemented to address the festering problem, but the subsequent amendments haven’t resolved anything. In fact, by not confirming its intention, critics say Ottawa’s inaction has severely undermined OBSI’s authority and credibility.

Last November, Toronto Dominion Bank, the country’s second largest, withdrew from OBSI.

“Banks are opting out because they can, and that is jeopardizing the model,” says a financial industry participant. “We really need Jim Flaherty to close the barn door.”

The industry is hoping the Finance minister will address the contentious issue in his upcoming federal budget later this month.

In the meantime, during his speech to the Commons committee, OBSI’s chief executive questioned the intentions of a “vocal minority of banks,” saying that consumer complaints “cannot be credibly handled by a private for-profit supplier chosen and paid for by the bank.” He added that such a situation “creates the perception, if not the reality, of a loss of critical independence.”

In the absence of a statement of intent from Ottawa, more banks are expected to follow Royal and TD. In the meantime, provincial regulators are trying to resolve the impasse between the ombudsman and the securities industry. The Ontario Securities Commission has been working with OBSI to adapt to its reduced role, and make it more receptive to the dealers’ concerns. At the same time, the CSA and industry regulators have been active with brokerage and mutual fund companies, assuring them that OBSI has proper oversight.

Last year was a little bit easier for the Ombudsman for Banking Services and Investments, with the number of opened cases falling to the lowest since 2008. It’s likely a welcome change, as the Ombudsman was swamped with complaints in 2010.

The Ombudsman’s office opened a total of 802 cases in 2011, including 397 related to banking, 255 related to IIROC-member firms and 130 MFDA-member firms. The remaining 20 cases involved RESP dealers and “other” investment dealers.

Among banks, TD was on the receiving end of the most complaints (131), followed by Scotia (72) and CIBC (65). Among Investment cases opened, TD was again at the top of the table, with 59 cases, followed by RBC (34) and Investors Group (32).

The high number of complaints may have played a role in TD’s decision to drop out of the voluntary OBSI system In October 2011. This affected only the banking arms of the overall company, TD Bank and TD Canada Trust, and not its various investments divisions.

Read Board: Force banks to use OBSI

TD is the second Canadian bank to withdraw from OBSI, following RBC’s withdrawal in 2008.

Banking

OBSI received 397 banking-related complaints in 2011, a decline of 14% from 2010.

“Service issues and fraud continued to be the largest contributors to the issues we addressed,” said Tom Goodbody, deputy ombudsman for banking services. “The areas where we saw the greatest breakdowns in service were in transaction accounts, mortgages, credit and debit cards and loans.”

He says that while customers have an obligation to read and understand product documentation provided, the banks must ensure to the best of their ability that the customer understands the product and that it meets their needs.

OBSI recommended compensation in 66 banking cases totalling $487,546, ranging from a high of $74,983 to a low of $30. The average compensation amount was $7,387.

Investments

“The surge in investment complaints that came in following the market meltdown of 2008-09 finally subsided this year,” Robert Paddick, deputy ombudsman for investments said in his report.

OBSI received 405 investments-related complaints, with Suitability being the most common issue (224 cases), followed by fees (50), transaction errors (41) and misrepresentation (40).

OBSI recommended compensation totalling $2,691,721 in 167 investments cases, ranging from a high of $220,000 to a low of $154. The average compensation amount was $16,118.

Who’s filing complaints?

OBSI has compiled demographic data on those who filed complaints, including information on age, ethnicity, education, occupation and income.

Over 75% of complaints were filed by people over the age of 50. A slim majority (53%) of OBSI clients were over the age of 60. Of those over the age of 60, 70% were retired and retirees made up 40% of all complaints.

Read: Why older clients complain

“For many of these individuals, the financial harm they suffer when a bank or investment firm makes a mistake is magnified by having fewer years to make up the losses,” the report points out. This make the ombudsman’s role even more important, as an OBSI complaint is both cheaper and faster to resolve than legal action.

“We are seeing more cases of elder financial abuse and in view of the country’s demographics this is likely to grow in the coming years,” says Goodbody. “Where an elderly person is adding a family member or friend to their account(s) or signing a power of attorney, the bank’s role has become increasingly difficult yet nonetheless important.”

The demographic survey also found that almost 80% of OBSI complainants had some form of post-secondary education, compared to just 52% of the overall population. This makes sense, however, since the general population data includes every Canadian over the age of 15, and few 15- to 20-year olds have higher education.

University graduates made up the largest segment of complainants, at 42.7%, followed by those with a college, CEGEP, or other non-university diploma (26.2%).

The higher education level of complainants also makes sense, given that people with higher education also tend to be more highly engaged with the financial services industry, and are more likely to know their rights when they feel they have been wronged.

OBSI also found that visible minorities were under-represented among complainants; while 16.2% of Canadians identify themselves as a visible minority, only 11.6% of OBSI complainants did so.

“While cultural factors may play a role, more research is needed into why we are still not reaching this important segment of Canadians in the way we should be,” the report says. “While we already handle inquiries in over 170 languages, include information in multiple languages on our website, and engage regularly with several ethnic media outlets, more can and should be done.”

A narrow majority of complaints came from single income households (53.2%). Among single-income households, 62.8% of complaints came from households with an income of less than $60,000. Those earning $60,001 to $80,000 accounted for 15.2% of cases among single income households.

Among the 46.8% of complaints that came from dual-income households, 57.8% of cases involved households with less than $100,000 in income.

A huge majority (83.6%) of complainants owned their home. Just under 19% had children under the age of 18.

The majority of complaints came from Ontario residents (58.2%), followed by Quebec (12.8%) and British Columbia (11.2%).

At this link is a document outlining how they calculate what an investor is owed, in order to "make them whole", if they have been the victim of an unsuitable investment.

Click to enlarge image or go to link for actual doc

Keep in mind that in Canada, these types of fairness discussions are frowned upon and not generally "allowed" by our self regulating industry. Do not take this as the final answer to your problem, however, as suitability, fraud, misdirection or malpractice is still wrong, even if those inside the industry do not admit it here yet.

In Canada, we are a decade or two behind most developed countries, in investor protection. Pursue your case as if right is right and wrong is wrong, and pursue it with independent authorities (criminal and civil courts) and NEVER ever fall into the trap of the kangaroo courts run by those paid by the industry. If you enter any industry paid process, you will no doubt suffer a second loss, the first being your money.

OBSI future in doubt without industry co-operationShare Print this articleWithout either industry or government support non-profit organization “cannot hope to survive”By James Langton | February 24, 2012 09:00Companies cited in this articleOmbudsman for Banking Services and InvestmentsOBSI plans governance revampInvestment complaints taking longer to resolve, OBSI saysMoreThe besieged financial industry ombudservice says that if it doesn't get the necessary government and regulatory support, its future may be in doubt.In its annual report released Friday, the Ombudsman for Banking Services and Investments doesn't shy away from the controversy that has dogged the service over the past year. OBSI has been meeting with increased industry resistance to its efforts, culminating with TD Bank's withdrawal from the service late last year. An independent review of OBSI found no real merit to the industry criticism, and it recommended sweeping reforms designed to shore up the organization's status as an independent dispute resolution service. However, governments and regulators have yet to take up those recommendations.In the report, OBSI chairwoman Dr. Peggy-Anne Brown warns that OBSI's very survival may be at stake. While it lauds investment industry regulators for refusing to bow to pressure to allow firms to drop out of the service, it says that without either industry, or government, support, "A small non-profit organization cannot hope to survive.""In the absence of sufficient industry co-operation and support, government and regulators must step in, as they have clearly done for the investment sector, to support a fair, independent and impartial reviewer of bank complaints," it says, and, if they don't, it suggests that it may be time to revive the original plan. "A statutory dispute resolution scheme, may be preferable," it says.In addition to all of the controversy over its future, OBSI also reports that it saw the first instance of a bank refusing a recommendation to improve practices and provide compensation to consumers, after it uncovered a systemic issue, last year. And, as a result, consumers won't receive the compensation OBSI considers fair and reasonable under the circumstances.OBSI reports that in its first full year of reviewing potential systemic issues, it identified 10 possibilities, of which seven were deemed not to be systemic concerns, and the other three (which were deemed systemic) were all with one firm and all involved a lack of disclosure in mortgage documentation.Despite all the resistance OBSI faced from the industry last year, it also says that it saw its complaint volume go down last year, both on the banking and investments side. Banking complaints were down 14% from the previous year; and, it says, the focus of complaints has shifted from the calculation of interest rate differentials on mortgage prepayments to service issues and fraud as the top issues.Investment industry complaints also dropped sharply, by 28%. Yet, OBSI reports that complaints about exchange traded funds, and in particular leveraged ETFs, are on the rise. "Many leveraged ETFs are complex, high-risk investments. It is important that advisors know their product and only recommend leveraged ETFs to those clients for whom they would be suitable," it says.In total, OBSI says it recommended compensation in 233 cases in 2011, worth almost $3.2 million in total. This represents 26% of all closed cases, it says, adding that just 15% of banking complaints were upheld, versus 37% of investment complaints. Banking complaints were also resolved much faster, with 87% of cases concluded within 180 days, compared with just 26.5% for investment files.Still, the drop in complaints, and the clearing of a backlog of investment complaints (which was completed on time and under budget) also means that OBSI's budget will decline for the first time ever in 2012 (by 4%).

The Investor Advisory Panel of the Ontario Securities Commission appreciates the opportunity to comment on external dispute resolution services in Canada, including developments with the Ombudsman for Banking Services and Investment (OBSI). By way of background, the IAP is an independent body that was appointed by the Ontario Securities Commission in August, 2010. We are charged with representing the views of investors and providing input on the Commission’s policy initiatives, including proposed rules and policies, the annual Statement of Priorities, concept papers and other issues.

Introduction

Maintaining and building trust between consumers and financial services companies should be a central goal of Canadian regulatory and governmental policy – a goal endorsed by the G20 meeting of world leaders in February, 2011.1 How the industry handles consumer complaints is an essential component of that trust. However, knowing where to turn with complaints and navigating the bureaucracies of large financial institutions can be overwhelming for many consumers and small businesses.The Investor Advisory Panel believes wholeheartedly in the importance of an independent, impartial, and financially accessible body that provides Canadians with an effective way to resolve disputes with banks and financial institutions. We believe in a process that facilitates financial redress for consumers. Formal legal proceedings are often not a viable alternative because they are costly, complex, and not readily accessible to most Canadians for disputes of this kind.

Recommendations

Our recommendations are as follows:

First, we call on the Ontario Securities Commission as an important member of the Joint Forum of Financial Market Regulators to push for broader and more robust protection for consumers and investors.

Second, such protection should include a statutory fiduciary obligation for all advice-based financial service providers. If strong regulation exists ex ante, the likelihood of disputes arising ex post presumably decreases.

Third, a truly independent, objective, accessible and effective external dispute resolution (EDR) regime is likewise an integral component of investor protection. To be effective and to avoid the conflicts of the past several years, such a dispute resolution regime cannot rely on the voluntary participation of banks and other financial institutions. Participation in an independent, universal EDR service should be a legal requirement for all firms in the financial services industry. The decisions of this body should be binding on all participants with limited rights of appeal to an independent tribunal supervised by the regulators and it should have the statutory authority and resources required to provide timely, effective and impartial decisions to Canadians. Such a regime would bring Canada to the standard now implemented in other common law countries including the United Kingdom, Australia and New Zealand.

Accordingly, we believe that the Joint Forum of Financial Market Regulators which oversees OBSI should seek to prevent further departures of participating firms from OBSI and endorse the decisions of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA) to require participation in OBSI. We support compulsory participation in OBSI by all banks and financial services providers, including the two banks that have recently departed. (TD, RBC)

The interests of Canadian consumers, including the cultivation of public trust in the domestic financial services industry, are not served by the increasing fragmentation of ombuds services for consumer financial complaints. No party in a dispute, including banks and other financial institutions, should have the right to choose its own adjudicator, particularly when those adjudicators are private, for-profit providers.

Such a system has an inherent lack of independence. A profit-seeking dispute resolution service chosen by and paid for by the banks cannot be impartial and independent.

Fourth, we call for a simple, accessible, and universal EDR service for all consumer financial and investment complaints in Canada. The scope of this service should not be constrained by sector or product type, but should encompass complaints relating to segregated (insurance) funds, and limited and exempt market dealers as well as banks and all financial institutions. Canadians should not be subject to different levels of protection and compensation depending on who sold them their investment. As an interim step, the separate insurance and investment dispute resolution bodies should at least share a common discovery process, so that consumers do not have to “learn” multiple systems in order to have their complaints adequately addressed.

Placing Industry Complaints in Context

Over the past three years, two major banks have withdrawn from OBSI, and several members of IIROC have attempted to do so.5 The extent and merit of the industry’s criticism have been challenged:••The independent review of OBSI’s activities published in 2011 (The Navigator Report)6 concluded that the industry’s complaints lacked substance. The Navigator report also established that the industry wins 69% of the complaints referred to OBSI, compared to the average of 50% in other common law jurisdictions.

Total compensation paid to consumers by financial institutions on 255 closed cases under OBSI mediation was $3.8 million in 2010.8 Of this amount, banking services customers received average compensation of $5,676 per settled complaint, with a median of $2,000, and investment services customers received average compensation of $19,121 per settled complaint, with a median of $8.205.9In concordance with the Navigator Report’s findings,10 we do not think that OBSI membership imposes an unduly costly or onerous burden on the financial industry.

Fiduciary Requirement, Universal External Dispute Resolution

A legally explicit fiduciary duty for financial advisors would improve Canadians’ trust in the financial system and may reduce the volume and severity of complaints, in our view. Industry objections regarding Know Your Client forms, client risk tolerance, client knowledge and responsibility for investment decisions would lose force. Indeed, the Investor Advisory Panel’s own consumer research11 demonstrates that investors believe that such a fiduciary duty already exists. This false belief may contribute to the existing volume investor complaints, i.e., if investors place undue trust in their advisors on this basis, and this trust is broken, they rightly believe that they should have some recourse.Certain financial services firms12 have criticized OBSI for disregarding or not adequately accounting for clients’ contribution to their own misfortune, i.e., through investor ratification or the failure to mitigate investment losses. The protection of investors and consumers in financial markets has long supplanted the raw idea of caveat emptor as it should in this case. The introduction of an explicit fiduciary duty would clarify the advisor-client relationship, further protect consumers and likely reduce the frequency and severity of complaints. It is long overdue.

Conclusion

The existing system is confusing for Canadian financial consumers. Many Canadians are unaware of OBSI’s services and powers. They lack clarity regarding which disputes should be addressed to the OBSI and the circumstances which entitle them to refer their complaints to it. The present and further fragmentation of EDR services in Canada is a regressive step in consumer financial protection. The implementation of a truly national and universal EDR service for all investor complaints would address these issues. The office should include as members dealers of segregated (insurance) funds as well as limited and exempt market dealers in order to simplify access to dispute resolution services for Canadian investors.Once again, we appreciate the opportunity to comment on this important matter. We feel strongly about these issues. Please contact us if you wish to discuss the matter further which we would be pleased to do.Yours very truly,The Investor Advisory Panel Anita Anand, Nancy Averill, Paul Bates, Stan Buell, Lincoln Caylor, Steve Garmaise, Michael Wissell

Wednesday, 22 February 2012Judge Lays Out Limitations of OBSIA judge would be considered by most an expert in justice and an impartial observer of the conditions that lead to justice. It is thus worth noting the recent comments of Judge Bryan Shaughnessy of the Ontario Superior Court regarding the Ombudsman for Banking Services and Investments (OBSI). Though his comments are made only in relation to whether the OBSI would be a suitable body for resolving a class action in the case before him, I think his list applies in general to OBSI as a means for investors to get justice.

Here are the defects and limitations Judge Shaughnessy lays out:the OBSI invites participation by firms but cannot compel cooperationthe OBSI can make a recommendation but it cannot compel a firm to make the payment recommendedthe only remedy for non cooperation by the firm and/or not following the recommendation is the "rather anaemic remedy" of publishing the name of the firm and details of the refusalthe enforcement procedure is not binding on the firm; this amounts to "... a denial of access to justice" for investorsthe OBSI can only handle complaints for amounts up to $350,000 unless the parties agreeclaims for punitive damages are not an explicit option under OBSI; I would guess this is what the Judge is thinking about when he says later that behaviour modification "... does not appear to be the objective or mandate of the OBSI process"."The appearance of impartiality and independence of the OBSI is to some extent in play. ... [since] the ombudsman's recommendation is not binding on the Participating Firm or the Complainant. A truly impartial and independent body would have control over its process."the OBSI dispute process is sparsely definedthere is no hearing process for complainants to introduce evidence or make submissions and there is little or no chance for investor participationthe OBSI is not bound by rules of evidencethe procedure by which recommendations are arrived at does not lead to a record of how the OBSI's recommendation is calculatedSo there we have it, a checklist for reforming and strengthening OBSI.

Don't get me wrong. OBSI, even with its deficiencies, has been doing valuable work for investors. It does, however, need a counter to the industry offensive to shun it, no doubt spurred by too many cases where OBSI has taken the investor's side. As the saying goes, the best defense is a good offense. Let's reform OBSI and make it a body with sharp teeth and power. Go to it politicians.

Thanks to Ken Kivenko of [url]CanadianFundWatch.com[/url] for the heads-up on this court case (the details of which seem to show some odious, abusive practices involving mutual funds, financial "advisors" and inappropriate leveraging advice). Ken's website also has a very practical (and sobering) investor guide to dealing with the OBSI. The pdf judgment from which I extracted the Judge's ideas is linked to on this page of the website of Thomson Rogers, one of the law firms in the case.http://canadianfinancialdiy.blogspot.co ... -obsi.html

I had a conversation with a person going through the OBSI process and I thought I should pass along the highlights, which were shared with me, in case they may be of benefit to other abused investors.

First the background.......an investment victim, a fraud victim, given an industry promise of "trusted professional financial advice", and then delivered the services of a commission sales agent, touting the highest paying (commission paying) products, with the highest fees, lowest performance and some borrowed money (leverage ) thrown in the maximize the payout to the salesperson.

Despite this background, despite the fraud, the misrepresentation, and some of the clearest thinking and presentation of of the facts that I have witnessed yet........the feedback from OBSI sounded like this:

"IIROC regulations are not sufficiently clear to allow us to ..........."

"unless we can "convince" the firm that they did wrong............."

I won't go on and on, except to say that I have very little direct experience with OBSI, but I do not have to be told very much to imagine them being impotent and self protective, rather than client protective To add further to their vulnerability, they are at this moment, being "fired" by some (TD and RBC) banks who do not like OBSI's brand of dispute resolution, and prefer to hire their "own".

OBSI is living up to the image of an agency with no teeth, no balls, and no desire to do investor protection, but a huge need to work on agency protection. Sorry OBSI if I am being overly harsh, but your PR has been as invisible as the BC Sasquatch.....

SO another of the 120 plus agencies, departments, offices, associations, regulators and self regulators, all apparently either captured, or in the process of being captured (or marginalized) by a financial industry "too big to prosecute".

Buyer beware my fellow Canadians, now more than ever before. buyer beware even if they give you promises of "trusted professionals."

The embattled Ombudsman for Banking Services and Investments (OBSI) is looking for a new chairman as part of a “broad-based” reform of its governance structure.

The not-for-profit mediator of last resort, which has been under fire from Canada’s major banks and their investment dealers, is currently canvasing for an independent chair to replace Dr. Peggy-Anne Brown. A special governance committee of OBSI’s 11-member board of directors, which was created to oversee the overhaul, is in charge of the search.

The changes, which were among key recommendations made by an independent evaluator from Australia last November, are expected to be completed in time to replace several long-serving independent directors, including Dr. Brown, who will step down in September, at OBSI’s annual general meeting.

Created in 1996 to review complaints by small businesses against chartered banks, OBSI is the only national independent dispute resolution provider in the financial services industry. Its mandate expanded in the past decade to cover all unresolved grievances.As arbitrator of last resort, OBSI resolves disputes between the 600 participating banks and investment firms and their customers if an agreement can’t be reached between them.

However, while the major banks and credit unions participate on a voluntary basis, the investment industry-brokerages, and mutual fund companies joined OBSI on a mandatory basis in 2002 as required by the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Funds Dealers Association of Canada (MFDA).

But there has been tension building between the industry and OBSI in recent years. Troubled by the growing number of consumer complaints filed against them, the length of time to resolve the disputes and the steadily increasing damages being awarded to clients, investment dealers are demanding changes to OBSI’s governance structure to make it more transparent and accountable.

Last year, RBC Capital Markets Ltd., TD Waterhouse and Manulife Financial Corp. filed an application with IIROC, the national self-regulator overseeing investment dealers and equity trading, for an exemption from the mandatory provision that requires them to resolve disputes through OBSI.

That application was denied by IIROC and the MFDA in May, 2011. Since then, securities regulators and the industry have been trying to resolve their differences over OBSI.While that was happening, TD announced last November that it would cease using OBSI to mediate disputes with its bank customers.

The departure marked the second time a major Canadian bank has relocated its dispute resolution business away from OBSI in favour of a for-profit mediator. Royal Bank of Canada was the first when it quit using OBSI for its banking disputes more than three years ago.

As a result, numerous shareholder advoate groups and OBSI’s 11-member board of directors have asked Canadian financial services regulators to force the banks to support the not-for-profit mediator of last resort through “mandatory participation.” So far, Finance Minister Jim Flaherty has not indicated what, if anything, the government will do.

All-public panels are a hit with investors, Finra saysPopularity of new program could quell calls to end mandatory arbitration

By Dan JamiesonJanuary 29, 2012 6:01 am ETAfter nearly a full year, the Financial Industry Regulatory Authority Inc.'s program to let investor plaintiffs exclude industry arbitrators from hearing panels has proved more popular than expected.

So popular is the program, in fact, that it could ease concerns about industry bias and help quell calls to end mandatory arbitration.

From the start of the all-public program in February 2011 through Jan. 26, more than three-quarters (76%) of investors chose the all-public option, which allows them to strike industry arbitrators from proposed lists of panelists.

That figure was up from a 54% opt-in rate during a 27-month pilot program, according to Finra.

Normally, investor cases are heard by three-person panels that include an “industry” arbitrator who works in or is associated with the financial industry.

SURPRISING POPULARITY

The popularity of the all-public program is a “bit surprising, because the pilot numbers were lower,” said Linda Fienberg, head of Finra's arbitration program.

Observers said a growing familiarity with the all-public option by plaintiff's attorneys is driving its widespread use.

The pilot also was limited to customer cases against a select group of firms and applied only to those cases where an individual broker was not named. The permanent program includes all firms, as well as cases against brokers.

“The program has given everyone an option” to use in a larger number of cases, said Ryan Bakhtiari, a partner at Aidikoff Uhl & Bakhtiari, and president of the Public Investors Arbitration Bar Association, which represents plaintiff's attorneys.

The Securities Industry and Financial Markets Association also supports the program.

“We also think it's quite important that an industry panelist remains an option for investors,” Kevin Carroll, associate general counsel at the trade group, wrote in an e-mail.

SIFMA was smart to support all-public panels, said David Robbins, a plaintiff's lawyer and partner at Kaufmann Gildin Robbins & Oppenheim LLP.

The program has eased concerns about industry bias and helped counter the push by the plaintiff's bar and state regulators to end mandatory arbitration, he said.

“Finra had to respond this way because ... they were fearful they would be out of [the arbitration] business,” Mr. Robbins said.

“I do believe this [program] has removed the one issue [critics] could use to claim the [Finra arbitration] forum wasn't as fair as it might be,” Ms. Fienberg said.

Data from the pilot program are inconclusive as to whether investors did better when they opted into the program.

Of 49 pilot program awards issued by all-public panels, investors were awarded damages in 26 of 40 cases, or 65% of the time, according to Finra. Another 23 pilot program awards were issued by panels with one nonpublic arbitrator, and in these instances, investors got relief 13 times, for a 62% win rate.

In nonpilot cases, win rates were lower: In 2009, arbitrators awarded damages to investors in 49% of cases; in 2010, the win rate was 48%.

However, Finra said that the award data are insufficient to draw meaningful conclusions about whether all-public panels tend to favor investors — a conclusion that others share.

“Talk to me in a year” about win rate data, Ms. Fienberg said.

“We'll have a better idea then” whether customers do better with all-public panels, she said.

The growing use of the all-public option has worried some industry arbitrators, who insist that they can be as tough, if not tougher, on industry malefactors as public panelists.

“I've noticed inquiries for me [to sit on panels] have dried up,” said Neal Tourdo, national sales director at Mastrapasqua Asset Management Inc., who serves as an industry arbitrator.

Eliminating industry panelists “is a mistake,” he said.

“Finra doesn't do a good job of educating [public] arbitrators about investments,” Mr. Tourdo said.

For more technical products, such as derivatives, “the public arbitrators are generally unprepared,” said Joseph Stineman, a partner and chief compliance officer at Fogel Neale Partners LLC, who is also an industry arbitrator.

He added, however, that his own caseload of four potential customer cases is heavier than ever.

Of the 1,431 cases in the permanent program that have ranked panelists, investors have chosen to strike all the industry people in 66% of the cases, according to Finra.

Despite the success of the all-public option, the plaintiff's bar and state regulators still want an end to mandatory pre-dispute arbitration agreements.

“We think choice is working with the all-public program, and we think choice is the way to go in arbitration” overall, Mr. Bakhtiari said.

If arbitration were made optional, “I think [the industry] would improve the customer protection aspect of it,” such as providing for attorney's fees and written decisions, said John Cronin, Vermont's securities director and chairman of the North American Securities Administrators Association Inc.'s broker-dealer section.

The Dodd-Frank reform law gave the Securities and Exchange Commission authority to prohibit mandatory arbitration in brokerage contracts.

The commission hasn't yet acted on that authority.

CUSTOMERS WINNING

Mr. Robbins doesn't think that will happen, due in large part to the all-public option.

Customers “are winning” in Finra arbitrations, he said.

“Why kill a system where you can prevail?” Mr. Robbins said.

The SEC doesn't have a timetable for looking into the arbitration issue, Ms. Fienberg said.

“My best guess ... is, they are mightily working to do [other] things with a time requirement first,” she said.

Meanwhile, Republican control of the House and recent Supreme Court decisions make legislation prohibiting mandatory pre-dispute agreements less likely, Ms. Fienberg said.

TD bank treated clients poorly : When TD Bank pulled out of OBSI at the end of November , a few TD complainants got caught with their complaint in mid stream. TD refused to pay for the continuance of the OBSI investigation. The hapless complainants had to start all over agian with TD's own "independent " Ombudsman ,ADR Chambers. These poor folks suffered as much from this abuse as the original cause of the complaint. To say they are bitter and angry is an understatemnt. Finance Minister Flaherty should mandate that all Canadian Charted Banks be participants in a legislated-enabled and reformed OBSI. OBSI's Board isn't clean either- it didn't have the foresight to anticipate what would happen to its clients if a bank decided to give it the finger. Once again, Main Streett gets the shaft due to complacency, negligence and blatant disregard.

As if it is not enough to be in a self regulating position in the country.............not enough to know that the criminal code rarely gets applied to ones industry indiscretions...........not enough to have near monopoly powers over ones marketplace..........not enough to earn billions in profits often at the expense of fair dealing at times. No, all that advantage is not enough for some.

Investor warning: If you are going to play in an arena with folks who insist on bringing their own referee to the game, keep in mind that some of the calls may not always be fair. Just sayin...........

(advocate comments........while Canadian banks scheme behind closed doors to fire the Canadian Banking Ombudsman, and hire their "own" private guns to do this work to their own advantage.......other countries are getting it right. Part of the foundational reason why Canadian financial customers are mostly "fish food" for the big players.)

2012/01/02 15:00 Home > Economy >New body to mediate disputes between consumers, financial firms2012/01/02 21:17:28Taipei, Jan. 2 (CNA) A nonprofit agency that will arbitrate disputes between consumers and financial institutions was formally launched Monday, centralizing a process currently divided between several different organizations.

The body, called the Financial Ombudsman Institution, will hear disputes between consumers and financial services companies such as banks, brokerage houses, and insurance companies and decide on compensation.

"The institution will not only be a consumer protection body, but will serve as a bridge for communications between consumers and financial institutions and make just and professional rulings on disputes between the two parties," said Chen Yuh-chang, chairman of the Financial Supervisory Commission (FSC), which will finance the new body.

Lin Kuo-chuan, chairman of the new institution, said financial institutions must first sign an agreement to state that they are willing to accept the institution's arbitration before cases related to them can be heard.

To get financial institutions to sign the agreement, Lin said it will publish a list of the companies that are unwilling to cooperate.

"Through transparent information, we will let consumers understand which financial institutions are willing to accept arbitration so that they can feel better protected," Lin said.

Lin said that around 1,000 cases had already been transferred to the institution by groups currently involved in arbitration procedures, such as the Bankers Association of the Republic of China and the Taiwan Insurance Institute.

Most of the disputes involve the purchases of structured notes, Lin said.

He predicted that the institution will handle more disputes related to insurance products than to products sold by banks because of the more complicated nature of insurance policies and claims compensation.

According to the institution, it will follow a three-stage arbitration process, starting with face-to-face intermediation, followed by a written assessment, and concluding with the institution's ruling.

As long as the dispute involves compensation of under NT$1 million in an investment dispute and under NT$100,000 in a non-investment dispute, the financial institutions should "accept the result of arbitration" as final,

Letter to Minister Flaherty: Mandate OBSI as the Single Provider of External Dispute Resolutions for All Financial Institutions

FAIR Canada recently wrote an open letter to Minister Flaherty, Canada's Minister of Finance, urging him to designate the Ombudsman for Banking Services and Investments (OBSI) as the approved, sole provider of external dispute resolution (EDR) for financial client complaints and to make the recommendations of OBSI binding. A single dispute resolution service provider is necessary in order to avoid fragmentation, inconsistencies, serious potential conflicts of interest, consumer confusion, and to enable the detection of systemic or widespread issues. It is not in the public interest to permit multiple EDR providers.

FAIR Canada supports OBSI as the single dispute resolution provider for clients both of the banking and investment industries. A single independent dispute resolution service provider is essential to ensure the protection of Canadian consumers. One single dispute resolution service provider is necessary in order to avoid fragmentation, inconsistencies, serious potential conflicts of interest, complainant (client) confusion and enable the detection of systemic or widespread issues.

FAIR Canada urges the Minister of Finance, pursuant to the Bank Act and its related regulations, to designate OBSI as the approved, sole body that all financial institutions must participate in in order to deal with client complaints that have not been resolved through internal complaint mechanisms and to make the recommendations of OBSI binding. OBSI remains an essential, simple, inexpensive service for consumers, even though it is a system in which member firms hold a great deal of power, expertise and knowledge. Permitting banks and other member firms to opt out and choose their own external dispute resolution ("EDR") provider, as both the Royal Bank of Canada and, more recently, TD Bank have done in electing to use the for-profit service, ADR Chambers, threatens the existence of OBSI and jeopardizes the fairness and independence enshrined in the current system. It is not in the public interest to permit multiple EDR providers, particularly where the financial institutions choose and compensate private, for-profit providers.

It is important to remember that OBSI is a creation of the banking industry, developed to pre-empt the imposition of a statutory ombudservice. The banking and investment industry is now attacking the entity it created and supported for the level of independence it has achieved and for not being subservient to the industry's interests. OBSI's approach to assessing complaints and its loss calculation methodology is competent, highly consistent and has even been found to be superior (more fair and more accurate) to similar financial ombudservices that are used in comparable jurisdictions.

The financial industry has no real basis for its complaints about OBSI and has refused to enter into a reasonable discussion in order to resolve the impasse. In fact, industry wins 70 percent of all complaints filed by consumers and total compensation paid to customers of some 600 banks and investment firms and mutual fund dealers amounted to only $3.78 million for 2010, with the average amount of compensation being $7,158 per complaint . The dollar amounts are completely insignificant to the banking and investment industries but they are significant for consumers of financial services.

The financial industry benefits from a fair EDR provider (particularly where customers perceive the process to be fair) that is independent of industry. The "Occupy" protests reflect a growing distrust of the current financial system and industry's campaign against OBSI reinforces the negative perception of the financial industry, to which the financial industry should be mindful.

While OBSI has the power to "name and shame" if the firm refuses to accept the complaint resolution recommended by OBSI, OBSI's ability to effectively use this power is reduced substantially when the financial industry bands together and decides to play hard ball. The problem of the "stuck" cases demonstrates the need to put OBSI on a stronger footing.In a time when Canadians are shouldering more of the responsibility of saving for their own retirement, and during a period of economic uncertainty, it is essential that Canadians have access to a simple, inexpensive, neutral dispute resolution service to resolve their banking and investment complaints. The Expert Panel on Securities Regulation noted the inadequacy of complaint handling and redress mechanisms in Canada. The Chair of the Ontario Securities Commission, Howard Wetston, Q.C., speaking on behalf of the Canadian Securities Administrators (the "CSA") at the OSC Dialogue on November 1, 2011, publically endorsed a single system of external dispute resolution; "The CSA strongly supports the existence of a single system of informal dispute-resolution to which investors can have recourse as an alternative to litigation or binding arbitration."

As the Minister responsible for banking and the champion of a National Securities Regulator, we urge you to act now to prevent industry from retaining multiple providers of EDR services. Put OBSI on a stronger footing through permanent legislative authority on a national level. When a national securities regulator comes into being, a single EDR service should also be mandatory.Even TD Bank, upon opting out of OBSI, agrees that a reformed OBSI is the answer: "We agree with the regulators that one single, independent dispute service is preferable and that should be OBSI" .

FAIR Canada thus urges you to act now to require mandatory bank participation in OBSI and work to implement the other changes necessary to ensure that OBSI has the ability and resources it needs to continue its work of finding resolutions that are fair and reasonable to both consumers and the financial institutions.

“We should simplify the redress system for consumers, not allow more fragmentation.”

Toronto, ON—Today, the Board of Directors of the Ombudsman for Banking Services and Investments (OBSI) released the following statement:

“In the wake of TD Bank’s withdrawal from OBSI for banking complaints, the Board of Directors would like to strongly express our complete support of and confidence in OBSI management and staff. We are grateful to them for the tireless and often thankless work they do day in and day out to achieve fair outcomes for the most difficult financial consumer complaints.Canadians are justly proud of our financial services sector. Over the past few years, it has been an example to the world in large measure due to prudent and balanced regulation of the sector, a key element of which is an effective consumer protection framework.

At the heart of that framework is trust; trust between the financial institution and the consumer. How the complaint handling system functions is essential to maintain that trust when the consumer feels he or she has been wronged or treated unfairly. For many individual consumers and small businesses navigating the bureaucratic maze of many large financial institutions can be a daunting prospect and baffling ordeal. When a consumer cannot satisfy his or her complaint with a firm, there must be a fair, impartial and efficient alternative to costly and lengthy legal action.

Canadian consumers and investors deserve an independent, accessible, and effective service that meets the needs of consumers and operates in the public interest. Government needs to know they have an effective partner in dispute resolution, one that independently and credibly deals with consumers and investors, and is transparent and accountable to regulators. For almost 16 years, OBSI has quietly and effectively performed this role.

OBSI’s Board of Directors believes that an effective consumer protection service that operates in the public interest cannot survive without the voluntary support of the banking sector, or in the absence of that voluntary support, mandatory participation through designation under the Bank Act or the approval process contemplated by the anticipated regulations pursuant to Bill C-47.OBSI engages in extensive discussions and sharing of information with regulators and government. As part of its Framework for Collaboration with financial market regulators, OBSI must also submit to rigorous, independent third-party evaluations on a regular basis, judged against published guidelines on such things as fairness, transparency and accessibility.NEWS RELEASEOBSI’s Board of Directors believes we should simplify the redress system for consumers, not allow more fragmentation. We are committed to balancing the interests of all stakeholders, including consumers, industry, government and regulators, as we seek a way forward.”OBSI is the national independent dispute resolution service for consumers and small businesses with a complaint they can't resolve with their banking services or investment firm. As a free alternative to the legal system, we work informally and confidentially to find fair outcomes to disputes about banking and investment products and services.OBSI looks into complaints about most banking and investment matters including: debit and credit cards; mortgages; stocks, mutual funds, income trusts, bonds and GICs; loans and credit; fraud; investment advice; unauthorized trading; fees and rates; transaction errors; misrepresentation; and accounts sent to collections. Where a complaint has merit, OBSI may recommend compensation up to a maximum of $350,000.-30- Note: Quotes may be attributed to Dr. Peggy-Anne Brown, Chair.For more information, contact:publicaffairs@obsi.ca416-218-4244